The Meltdown Begins
After yesterday’s (October 17) blog, we are up to the 21st century and the election of George W. Bush as President of the US. The Glass-Steagall Act had been repealed but the Securities and Exchange Commission was allowed to remain.
Let’s step back slightly (to 1992) and cover the terms of President Clinton: Under President Clinton we were seeing productivity gains approaching 3 percent, and during his second term sometimes they even surpassed 6 percent. The rich were doing well — as were the not-so-rich, and even the very poor. It seemed like President Clinton was turning things around. His policies were clearly helping the less fortunate.
There were mistakes as well. We should have invested more in improving our bridges, improving our roads, and taken steps to cope with global warming. We should have invested more to promote energy conservation. We fell short because of politics, lack of money, and special interest groups shaping our agenda. But, all in all, it was the first time since the 1970s that incomes at the bottom grew faster than those at the top. That is worth celebrating.
George W. Bush becomes President:
By the time that George W. Bush was sworn in, the US economy was beginning to fall into a recession. According to generally accepted economic theories, it was a time to prime the pumps by putting more money into education, technology, and infrastructure. This was an ideal time for President Bush to step up and act with the incredible financial surplus that President Clinton had left him.
Roads Not Taken:
With the right decisions, George Bush could have become one of our greatest presidents in American history. President Bush could have spent it on fixing our roads and bridges, improving education so that we could better competed with the growing number of scientists graduating from top flight universities in India and China. Education, technology, and infrastructure — all of which we desperately needed more investment to compete with the world. That, in fact, is what Al Gore talked about doing with the surplus in some of the presidential debates. President Bush could have put the money there, but he didn’t.
US aid to Africa has been hovering around $5 billion a year, the equivalent of two weeks in Iraq. The President, and Republicans in general have always made a big deal about the problems facing Social Security, but the system, which some Republicans call a “Ponzi Scheme” could have been made sound with what we have bled into the sands of Iraq. For a small fraction of the $2 trillion dollars we spent in Iraq we could have guaranteed access to higher education for all qualified Americans. President Bush could have put the money there, but he didn’t.
The incompetence and contempt for the average American that the Bush administration showed was truly breathtaking. Under Bush, the US developed a tax code that was cruelly biased in favor of the rich. His administration pursued a tax cut that gave millionaires a cut that was 30 times larger than the average American. He gave us, a national debt that was and is truly frightening, oil prices higher than they have ever been, mortgage defaults of incredible proportions and a dollar so weak that buying a cup of coffee for an American in Tokyo becomes an exercise in high finance.
By 2006 the administration claimed that the economy grew by some 16 percent, but this growth helped mainly people who had no need of any help, and failed to help those who needed plenty. Our class structure, thanks to George W. Bush was headed in the direction of 3rd world countries in which there are the very rich and the very poor — and very little in-between.
The administration enacted the largest increase in entitlements in four decades — the poorly designed Medicare prescription drug benefit which was of great help to the pharmaceutical industry. This, from a Republican administration!
Recognizing how bad the Republican plan for fiscal stimulation was, it fell to the Federal Reserve to make an attempt. Unfortunately, they don’t have the flexibility that the President has. To stimulate the economy, The Fed drove interest rates down to about 1%. The predictable result was a consumer spending spree. Subprime mortgages were available to anyone not on life support. People who were clearly unqualified were taking out mortgages. The president was warned repeatedly of what his policies were doing to the country and that there would be a reckoning. He undoubtedly hoped that the reckoning would come sometime after the 2008 presidential election. It didn’t.
A lot of people were declaring bankruptcy but the Bush administration was ready for that. The Bush administration’s 2005 bankruptcy bill made it harder for people to discharge their debts in a reasonable way. The lenders were the clear winners, gaining additional protection for themselves and people facing financial distress got screwed.
Borrowing is not always a bad thing. If a business borrows money to buy a machine to increase its productivity and income, well, that’s good. During the Bush administration it has been borrowing to sustain its consumption. Meanwhile, investment in our assets has been declining. That’s very bad!
We are now paying $200 billion dollars per year of interest on our $4 trillion dollars of increased debt. This is the equivalent of two Iraq wars forever and ever! Taxes have to be raised to pay for this. There is a widening gap between the rich and the poor in America. Judging by the popularity of the Tea Party movement in this country, we don’t even want to begin to make things right. America, dumb as we wanna be!
So, the previous administration can be not only criticized for decisions made, but for decisions not made. The decisions NOT made will cause us grief far into the 21st century and will likely cause a huge decline in our standard of living. In comparison, Herbert Hoover made decisions which, when reversed by President Roosevelt, the country began to recover. The poor decisions and non-decisions of President Bush will be with us for generations.
(Much of my information was gotten from writings by Dr. Joseph Stiglitz, a Nobel laureate and professor at Columbia University. His article was written in the December 2007 issue of Vanity Fair)
Tomorrow, some of the people who you won’t have to worry about. They are doing just fine, thank you.